Infrastructure Development Cess or just another tax?

Forget what Cameron Munter had to say about the Iran-Pakistan gas pipeline - Pakistan government is all set to go ahead with the plan, at least as far as collecting taxes in the name of IP infrastructure development. The lower house has already passed the said bill named Infrastructure Development Cess 2011 and it only awaits the PM approval. The details are still murky but from the media reports it appears that the government intends to generate as much as Rs34 billion from the infrastructure development levy. Only time will tell if it actually happens but if does, the fertiliser industry will witness a long-awaited hefty increase in feedstock gas price, which could be as high as three times the current price. Bear in mind, this hike will be over and above the increase that the gas distribution companies have sought for the upcoming year. So a massive hike in urea prices is all set to greet farmers come New Year. The respite that the farmers have finally gotten recently in the form of scaled down urea prices on resumption of gas supply to fertilizer companies, will be very short-lived should the cess get implemented. Whether or not the farmers economy is resilient enough to bear the brunt of higher urea prices is entirely another debate, but it will certainly be a step towards gradual elimination of feedstock subsidy that has been demanded from all the industry voices for long. This may also provide a breather to the government as it would further scale down the difference between international and local urea prices translating into lower subsidies on imported urea. It also appears that CNG sector will be charged the development cess as well; a step which should be encouraged as it would narrow the CNG-petrol price differential and would discourage the use of the vital resource as a transportation fuel, which has severely dented the gas supply to sectors of higher economic significance. A major disappointment in the proposed bill though, is the treatment of the domestic sector which is likely to face a negligible development cess. Experts have long argued that the domestic sector gas prices are already on the lower side and domestic consumption needs to be discouraged or charged at a premium as it causes a huge imbalance in the winters especially, being the sector which sits in the top priority list. The biggest of all concerns though remains the utilisation of the tax money. Previous attempts to collect levy in the name of infrastructure development have backfired and the government had to remove development from PDL (Petroleum Development Levy), which is now merely PL. Given USAs stance on the IP gas pipeline, it appears highly unlikely that Pakistan would go against the American wish. There appears a strong likelihood that the money collected on this account would serve in bridging the fiscal deficit. A much better option would have been to allow better pricing to the gas development and exploration companies, instead of adding a layer in the middle chain of prices.